MMA Capital Holdings, Inc.
Q1 2016 Earnings Call Transcript

Published: 12 May 2016

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the MMA Capital Management LLC First Quarter 2016 Conference Call. My name is Gary and I will be your coordinator for today. [Operator Instructions] Please note, this call is being recorded. Some comments today will include forward-looking statements regarding future events and projections of financial performance of MMA Capital which are based on current expectations. These comments are subject to significant risks and uncertainties which include those identified in the Company's filings with the Securities and Exchange Commission that could cause actual results to differ materially from those expressed in these forward-looking statements. The Company undertakes no obligation to update any of the information contained in the forward-looking statements. I would now like to turn the call over to Mr. Michael Falcone, CEO of MMA Capital Management LLC. Please go ahead.

[Michael Falcone:]

Thank you, Gary. Good afternoon, everyone and welcome. With me on the call today are Dave Bjarnason, our Chief Financial Officer; Executive Vice President, Gary Mentesana; and Senior Vice President, Megan Sophocles. Dave and I will deliver our prepared remarks after which we will all be available to take questions. The purpose of our call today is to review our first quarter 2016 results, and to provide an overall business update, including some insights into how we see our business moving forward. With respect to our first quarter results, which Dave will review in detail later, we ended the quarter with 121.5 million of common equity, which represented $18.62 of equity per common share on a fully diluted basis, an increase of over 6% for the quarter. The majority of the Company's growth in diluted equity per share for the quarter was driven by a net increase in the fair value of our bond portfolio, and equity and income from our joint ventures. During the quarter, we also repurchased approximately 121,000 of our common shares at an average price of $14.64 per share. We continue to buy back shares at a discount to our fully diluted common equity per share, realizing $0.05 per share of additional common equity from the program during the quarter in addition to the $0.55 realized in 2015. As previously discussed this program has proven to be an important lever and our efforts to increase shareholder value. Following the increase in equity per share for the quarter as of this call, we’ve increased the buyback price limit to $18.52 per share, the fully diluted common equity per share reported in the first quarter financial statements. A number of factors entered into our buyback price decision we may not always use the most recently published common equity per share as a maximum buyback price in the future but so far it is proven to be a reasonable way to acquire shares at a manner that is accretive to our remaining shareholders. Across our U.S. operations, we saw the advancement of the teams discussed in prior quarters. First we continue to see credit quality improved during the quarter which along with a benign rate environment drove further increases in the fair value of our Bond portfolio. Both our Leverage Bonds business and the loan we held from the sale of the LIHTC business continued to perform as expected. Next we continued to see growth in our renewable energy finance business through continued strong origination in the solar energy finance joint venture including approximately $83 million of new loans. In the first quarter we also had $22 million of loans repaid to the joint venture. Remember that most of these loans are construction loans so as new loans are originated, old loans will pay off and capital will be recycled into the originations. Due to the net bonds by borrowers during the quarter, the actual UPV outstanding in the joint venture increased by $28 million during the quarter ending at $103.7 million. Although capital that the company and our joint venture partner have committed to this venture remain as a combined $100 million, ability to recycle the capital from maturing loans and the new underwriting continues to be an important element of the investment thesis. Investment returns on our solar construction loans joint venture continued to meet or exceed our expectations are having a positive impact on our bottom line and cash flows at this point contributing approximately $2.1 million of GAAP income during the quarter which exceeds the $1.5 million contributions income from all 2015. In addition we also completed underwriting on a solar construction loan outside of the joint venture in the first quarter for which we committed to provide up to $24 million of financing through December 31, 2016 at a 13% rate of interest and which we intend to hold directly on our books. Funding for that commitment began in the first quarter. Next, as mentioned on the prior calls, much of our 2016 returns in the Bank of America joint venture will depend on the value realizing the sale we acquired real estate with the first transaction expected to close this quarter. As Dave will explain we did not recognize in the first quarter any asset management fees from or interest income associated with our loans to this venture given judgments we made about revenue recognition requirements not being satisfied as of March 31. Because our assessment in this case is dynamic and as expected to change in future period, this will likely lead to some lumpiness and our fee recognition from the portfolio. Finally we reported just over $2.7 million of income associated with the sale of an asset held through real estate joint venture which continues our disposition program late into our legacy assets. With respect to international operations, we continue to see challenges in the performance of the business and large measure due to the much reported struggles in the South African economy. As reported on the last call as the economy weakens, so as the performance of our housing funds in South Africa. Brand volatility is made investments in South Africa less attractive to institutional investors. We’ve focused our fund to capital raising and development finance agencies and impact investors who are not as discouraged by the short term prospects in South Africa. We see this opportunity to bring additional investor capital into the fund and are hopeful that we will see results this summer. Operationally the trend associated with our property management company in South Africa that we noted in prior quarter continue to play out. As mentioned on prior calls, the underlying performance in many of our multi-family properties has improved when we take over property management operation to our new joint venture. This both adds the value of the property management company and has the potential to stabilize an increased value to real estate portfolio. Further with the development of the public institutional markets for these properties, strong NOI growth through this rough patch, combined with potential cap rate improvement over time should realize value on a long run for both our fund investors and ultimately our shareholders. With that, it's time to turn the call over to Dave for the financial highlights. Dave?

[Dave Bjarnason:]

Thank you, Mike and good afternoon everyone. As to provide an overview of our results, I’ll will first reference items 1 through 5 in item 2 of our Form 10-Q so the extent that you have our filing at front of you, I would ask that you please turn to Page 3 of the filings, we will find table 1 which is a balance sheet summary. In table 1 and as Mike mentioned, you can see that we reported on line 16 common shareholders' equity of $121.5 million which represents a $5.3 million increase compared to what we reported as of December 31, 2015. Additionally we entered the first quarter of this year with approximately $37 million of cash and cash equivalents as reported on line 1 on of the table which is about $15 million more than was reported at December 31, 2015. Turning to table 2 which begins at the top Page 4 of our filing, we attribute this table the reported increase in common shareholders' equity between net income, other comprehensive income and other changes in common shareholders equity. And look at this table you can see that between net income and other comprehensive income that is allocable to common shareholders, we saw a $6.9million increase to common shareholders' equity in first quarter of 2016 or the sum of line 22 partially offset by $1.6 million of other decreases in common shareholders' equity that I'll discuss in more detail when speaking to table 5 of our filing. Turning to table 3, which begins on the middle of Page 4 of our filing, this table provides a slightly modified presentation of our income statement. Overall you can see that on line 13, we reported $16.6 million of net income allocable to common shareholders in the first quarter of 2016 which represented a $16.4 million increase compared to what we reported in the first quarter of 2015. As far as key drivers of consolidated of operations with respect to net interest income which is covered in more detail in table 6, this line includes interest income associated with all the interest bearing assets, reduced by the interest expense associated with all debt obligations that we used to finance such assets. As you can see on line 1 of table 3, the amount of net interest income that we in the first quarter of 2016 was approximately $1.2 million less than we reported in the first quarter of 2015. The decrease in this case was primarily driven by one-off associated with our interest bearing assets and this regard from March 31, 2015 to March 31, 2016 the unpaid principal balance of recognized investments in bonds declined from [$244.] [ph] million to $193.1 million while the unpaid principal balance of recognized loans declined from $49.2 million to $24.4 million. With respect to fee and other income, which is covered in more detail on table 7, this line item includes income on our preferred stock investment, asset management fees and reimbursements, as well as other miscellaneous income. As you can see on line 2 of table 3, the amount of fee and other income that we reported in the first quarter of 2016, was approximately $900,000 less than what we reported in the first quarter of 2015. The main driver for this reported decline was redemption in the fourth quarter of 2015 of our investment preferred stock that as reported on line 1 of table 7, caused no income to be recognized in the first quarter of 2016. This decrease was partially offset by an increase in asset management fees and reimbursement that was primarily of search of $300,000 in reimbursement related income that we earned from our solar joint venture in the first quarter of 2016. With respect to other interest expense, which is covered in more detail in table 8, this line item includes interest expense associated with our subordinated debt, as well as interest expense associated with senior debt that does not finance our interest earning assets. As you can see on line 3 of table 3, the amount of other interest expense that we reported in the first quarter of 2016, was approximately $2.2 million less than was reported in the first quarter of 2015. This decrease was driven primarily by the restructuring of subordinated debt in the second quarter of 2015, which reduced our cost of funding. The decline in other interest expense was also driven by the termination in the fourth quarter of 2015 a financing associated with our investment of preferred stock. With respect to operating expenses, which are covered in more detail on table 9, this line item includes salaries and benefits, general and administrative expense, professional fees and other miscellaneous expenses. As you can see Slide 4 table 3, the amount of operating expenses that we reported in the first quarter of 2016 was about $900,000 more than we reported in the first quarter of 2015. This change was driven primarily by an increase in stock compensation related expense due to the appreciation to price of our common stock, as well by an increase in salaries and benefits that was tight to headcount increases in our growing renewable energy of funding business. With respect to net gains on assets and derivatives, which are covered in more detail in table 10, this line item includes net gains or losses associated with our bonds, our loans, our derivative instruments, sales real state and the extinguishment of recognized debt allegations. As you can see on row five of table 3, the amount of net gains on assets and derivatives that we reported in the first quarter of 2016 was approximately $1.5 million more than we reported in the first quarter of 2015. This increase is primarily attributable to gains that we recognized in the first quarter of 2016 associated with the sale and redemption of two bond holdings that generated $6.1 million in cash proceeds. With respect to net gains transferred Internet income from cumulative other comprehensive income due to real estate foreclosure, you can see that on row 6, table 3 we reported $11.4 million in such gains in the first quarter of 2016. This gain related to an investment into [indiscernible] bond, with respect to which we foreclosed apartment sold, the multifamily property and secured such investment. In this case the property was owned by lower tier property partnership from which one of our guarantee tax funds was a limited partner investor. We received $17.4 million in the cash proceeds in connection with the sale of this property but because the property was still within its tax compliance period, we expect to make a guarantee payment of $1 million to secure deficiency and negotiated guarantee return and to look at partners at front. Before we discuss this guarantee payment in Pages 12 and 41 of our filing. Before speaking to changes and other comprehensive income and other changes in common equity in the first quarter, I should mention that with respect to GE transaction that we consummated in the fourth quarter 2015, we did not recognize the first quarter of 2016 any asset management fees or interest income associated with our $5.3 million loan to GE fund loan. As required by U.S. GAAP income that we recognized in a given reporting period must among other requirements be reasonably attributed collections and whether that threshold has been clear it is a matter of adjustment to considers various factors including for example the length of time before amounts we owed or expected to be collected. As said in the first quarter of 2016, our judgment was that the GAAP threshold for revenue recognition perhaps fees and interest income associated with our loan to TCE was not cleared and as a result we do not accrue an income in that reporting period related to these items. However this assessment is dynamic and we made on ongoing basis in each future reporting periods. Tuning to Table 4, which begins at the top of Page 5 of our filings, you can see on row seven that we reported in the first quarter 2016 an other comprehensive loss to common shareholders of $9.7 million which is a $11.1 million less than we reported in the first quarter of 2015, this decline was primarily driven with the reclassification into net income of unrealized gains that pertaining to the non-performing bond I previously described and for which we foreclosed upon the multifamily properties secured such investments. As you can see on row 4 of table 7 this reclassification caused a decline in accumulative other comprehensive income of $11.4 million. Finally and turning to table 5, which begins in the middle of Page 5 of our filings, other changes in common shareholders’ equity in the first quarter of 2016 was driven primarily by share buybacks. As Mike mentioned, the company purchased approximately 121,000 shares in the first quarter of 2016 and while this activity reduced total common shareholders' equity such buybacks drove a $0.05 increase to diluted equity on a per share basis given that our average repurchase price of $14.64 was below of our reported book value per share. Before turning the call back over to Mike, I want to take another minute or two to provide some perspective on the disclosure that we made on Pages 25 and 26 of our filings and pertains to an immaterial correction of an error, as well as briefly touch on remediation efforts related to deficiency, internal controls that we reported in our Form-10K. As discussed in the disclosure I referenced the Company determined that in connection with two of its bond investments it understated the amount of interest income that recognized in 2009 to 2015 but overstating in equal amounts unrealized holding gains recognized in other comprehensive income. In this regard as of December 31, 2015 accumulated other comprehensive income was overstated by $7.2 million where retained earnings was understated by the same amount. However this area had no impact in total comprehensive income eligible to common shareholders, nor does it impact total common shareholders' equity or diluted common shareholders' equity per share for prior reporting periods. While this area was determined to be immaterial within those prior periods, we revise our consolidated financial statements and other financial information included in our first quarter Form-10Q for all prior years and periods presented because the aggregate amount of prior period corrections would be material to our projected annual results of consolidated operations for the current year. Further given the good cause of this error, we determine that the remediation of related control deficiencies will be appropriately addressed by the same plan that we are in process of executing to address deficiencies that we disclosed in the 2015 Form-10K. On that note, I should mention that more broadly speaking we are on track with our remediation plan and expect testing and implementing control enhancements to begin in July. I will provide another update on the status of remediation efforts at our next call in August. With that, I’ll turn the call back over to Mike.

[Michael Falcone:]

Thanks Dave. Consistent with prior calls, I want to spend a few minutes talking about our view of the business in the quarters ahead. We continued to focus on maximizing the value on our Affordable Housing business and growing our Renewable Energy business. As discussed on prior calls our returns in the joint venture with Bank of America to invest in the former GE well income housing tax credit business heavily base on the ability to monetize the underlying portfolio real estate overtime. Additionally with the robust pipeline of good investment opportunities in the solar energy lending business we are working to expand our access to additional capital keep up with potential origination opportunities. We continued to see this joint ventures and the interest in fee based income streams they create have for growth in the coming years. While additional item of knows the current plan with respect to share buybacks as it stands the company adopted the 600,000 share buyback authorization for 2016 and as of this call is just over half way through this authorization. The share thresholders focused on maintaining a marginal safety with respect to the tax rule surrounding our NOLs and certain change of control provisions in the tax loss. We believe that the buyback of our share has been effective way to drive value for our continuing shareholders as seen by another incremental benefit of $0.05 of fully diluted common equity per share realized this quarter. Board has concluded that a buyback at our current trading price represents an attractive investment especially as we continued to trade below book value and continues to support the idea of an incremental return of capital to shareholders either buyback program. We will not address the increase in the size of the 2016 program until we complete the current authorization. As discussed during our last call we continued to review ways to communicate our view of the infringing value of the company as individual components to help better frame that potential value the just for our shareholders but frankly we are struggling to do so in a manner that meets regulatory reporting requirements. We will continue to focus on this topic and continued to review and update our investor communications in the coming quarters. Before we take questions from our callers, I just wanted to reiterate that we remain focused on improving the per share value of the company with combination of the growth of our fee based platforms, share buybacks and strategic asset investments. And we believe that the current business landscape is favorable with respect to our plans. Given with this favorable conditions and persistent for some time there is important for us to remain visual and for contextual rough patches ahead. While we hope the business climate remains benign, we certainly can expect current conditions to persist indefinitely. Nonetheless, we are excited about our future, we remain committed to our shareholders and we thank you for your support. We’ll now open the call to questions. Operator?

[Operator:]

[Operator Instructions] The first question comes from Gary Ribe with MACRO Consulting Group. Please go ahead.

[Gary Ribe:]

Hi Mike, hi guys how are you doing? I was just curious, you guys didn't recognize any revenue from the Bank of America joint venture, what has to happen in order for you guys to recognize, I mean do you have to have capital events or something else.

[Michael Falcone:]

Basically we have to have capital events that are closing and that we feel comfortable that's – let’s call it a sale of an underlying property for this purpose but the sale is going to happen and the cash flow is going to flow through the partnership back to us as fee income. And you want to be more or less aggressive in making that call we decided to be - try to be more conservative in our judgments there and the wait until they were pretty -

[Dave Bjarnason:]

Yes. And the conservative I'd just add to that say conservative in this case is a direct reflection of a revenue recognition standards, which set a pretty high bar. I mentioned the nomenclature of being recently we assured a collection that's again a very high standard and again based upon various factors that we consider, we ended up at least in this particular quarter there might just explain - but again it's a dynamic analysis and we’ll continue value it quarter-to-quarter.

[Michael Falcone:]

I would say more generally we remain quite optimistic about where things stand with the GE portfolio.

[Gary Ribe:]

That's great. I think just for purposes of understanding on how people see a 2% asset management fee and just think the core rate that for the year. I don't know that anybody thought of it as having to have a capital event in order to put that out, but I guess you guys are getting first priority on the cash flows maybe asset management fee?

[Michael Falcone:]

Yes.

[Gary Ribe:]

Okay, that's fair enough. And I guess you mentioned you have a sale in the first quarter, do you anticipate booking any games over and above your residuals with that or not is it too soon to tell?

[Michael Falcone:]

I'm sorry, I’m not sure I understood the question.

[Gary Ribe:]

Yes, you guys get residuals on after sales of capital events from the portfolio if I understood that correctly, so -

[Michael Falcone:]

The sort of waterfalls and where capital that flows through will be recognized as fee income or residual income very time dependent. So we'll make that, I meant it's a little hard to predict right now. I think if you do a sale for example and you record two quarters worth the fees if it's a big enough sale then maybe some residual will flow through. It's three quarters and it's not a big enough fee sale then maybe fees will flow through, but not residual. So it's a little hard to predict when some of these things are going to fall into place just because of the variety of opportunities that are out there.

[Gary Ribe:]

Now it makes sense. So if I'm thinking about them whether waterfalls works this fees first then residual, so it just depends on how big the sales are and where you are an accruing the management fees?

[Michael Falcone:]

Correct

[Gary Ribe:]

Okay. I think that's fair enough. I did have a question you mentioned the share repurchase program, you said you're being conservative with the 10% number. What could that potentially be just out of curiosity?

[Michael Falcone:]

The 10% number is potentially a Safe Harbor below which we don't have to count those shares against the 50% turnover that we have every three years. So when above 10% we have to count those shares against the 50% turnover every three years.

[Gary Ribe:]

Okay. I mean do you have an estimate on where you are and how that roles and I mean it's 50% of growth share is right for your share count $3.3 million shares I guess the current $3.2 million depending - and that’s an awful lot of shares.

[Michael Falcone:]

Gary right now we’ve left ourselves a lot of pressure because that’s quite valuable asset. Whether in the future we might go above 10% kind of remains to be seen, I think that will be a factor of the facts and circumstances that are there at the time when I think last year, we kind - the sort of if I'm remembering correctly, we finished the share buy back in like November maybe and we so to set for one month it wasn't more sort of taking the risk above 10% and have an account that and everything else. If that happened in May, we might have had a different approach to that particular problem. So it is something - it’s not hard and fast role, it involves judgment by the board taking into account the risks associated with putting the NOLs, losing value of the NOLs on the one hand, on the other hand the ability to buy shares what we think is an attractive price.

[Gary Ribe:]

Okay, that's good. That makes sense. And I guess just going to the solar stuff, just real quick, what’s the intention there you guys put $24 million loan you're going to have on your balance sheet or I guess capacity for $24 million in the balance sheet, I can't start with the JV you guys were trying to maybe proof-of-concept and then try to raise out that money for - maybe I’m not thinking about that correctly or is that still the intention with that?

[Michael Falcone:]

That's generally the plan - again lining up the execution creates timing issues. So we would certainly like to bring additional capital to the solar business. We had some excess cash from the sales methods in the first quarter and we have what we thought was a really attractive investment opportunity which basically is six or eight month opportunity. So we decided to put capital to work and we’re continuing our efforts to try to bring additional capital to the table.

[Gary Ribe:]

Yes, I mean it seems like you guys are kind of having cash coming the door pretty regularly and you got a fair amount of excess that you got readily available. On last call you mentioned kind of looking at the other projects like Savannah and existing. I mean there is some pretty big plans that are being preferred why wouldn’t you guys be interested in a being part of that and do that?

[Michael Falcone:]

I’m not sure at this point in our - but we never really put a lot of money into real estate development and I don’t think right now given certain how we’re staffed given where that property is and given the scale of it frankly that we’re the right people to put capital there, we are still approaching that asset because if it’s going to be sold again selling raw land like that takes longer than selling an existing property both our efforts continue.

[Gary Ribe:]

Okay, I appreciate it. I will probably see you guys next week at the meeting and thanks for everything.

[Operator:]

The next question comes from Gabi Gliksberg, a Private Investor. Please go ahead.

[Gabi Gliksberg:]

I called in last quarter and talked about some of disclosures on margin growth, I don't know if that’s exactly you’re alluding to it end of your remarks about wanting to limit in a sort of what you can – or being force to limit what you can share about some of the subsidiaries or potential source of value but in a lot of ways, I think that is still a black box to me and other shareholders. Is there anything that you can share or state that will build the timeline or when we will be able to see some of the details on the value there?

[Michael Falcone:]

We agreed it’s kind of a black box, we agree it would be a good thing if we could make it not a black box but we have to do that in a way that meets the certain regulatory requirements and exactly we haven't come up with a good way to provide information that would be meaningful on the one hand and meet the regulatory requirements on the other, doesn’t mean we stopped trying to figure that out but in the course of the last quarter we have not.

[Gabi Gliksberg:]

Is there specific right issue that that is particularly sticky or what is that?

[Michael Falcone:]

The general rule of thumb is the SEC frowns on non-GAAP measures put out by companies and in this quarter they announced actions to get to couple of companies for putting out non-GAAP measures and we would have to put out a non GAAP measure to do this and so you have to be very careful about how you do that for example if you look at the sort of MD&A that Dave speaks to we’ve got essentially a non-GAAP measures in there because we pulled out consolidated fund- but you can tide those consolidated funds those statements exactly to our GAAP statements. Trying to figure out a way that sort of shows future hidden value which isn’t in our GAAP financial statements and time that back really got financial statement in a way that sort of regulatory authorities we think would be okay with is not easy and so that’s what we are trying to short term.

[Gabi Gliksberg:]

Got it, alright and next question just on the solar exposure if this sort of like at target, a maximum level of solar exposure that you guys are willing to hold on a balance sheet?

[Michael Falcone:]

There's a little bit of function of what else - what are other opportunities particularly in the real estate arena and - but right now we’ve got kind of its $75 million plus or minus in of exposure to solar $50 million in the venture and $25ish million in the off balance sheet loan and could I see that getting up to a 100 in today's world may be, do I see it going past that and not currently but if we add to significant sales or realization on other assets like Savannah for example or some of our bonds that could we do a different view on that.

[Gabi Gliksberg:]

I was asking about that the what is in launch on attentions to hold that was that creates vehicle that you would be managing but rather institutional investors. And you mentioned there was an issue of timing with those type of closing does that - even not a lot of appetite amongst the big institutions work with so that -

[Michael Falcone:]

With the timing I map with sort of the on the one hand we’ve got deal flow coming in the front door with capital come in the back door and we need a line of things up and sometimes we use our balance sheet as a shock absorber when those things don’t line up that $23 million loan was an example of using our balance sheet as a shock absorber and but we think that there is both that there is capital out there to increase the amount of capital that we put to work so far but getting capital raise is not over – so..

[Gabi Gliksberg:]

As attention you think that’s a raise like a large [indiscernible] that hold a lot of these kind of loans or is that more of like a one off basis placing those loans was a bank institution?

[Michael Falcone:]

We’re set up to sort of a originated loan and then sort of reseller off to a bank on a one by one basis, while the trading desk anything like that for those kind of activities. We would like to bring in I’ll call it terminate but I don’t need into that – that would be our partners somebody that be our lender whatever it may be for an extended period of time so, that we’ve got a address the more capital for this solar business. Right now, we see more of its loans we turned down over a $1 billion worth of loans in the solar space some of those were sort of not great loans but some of them were loans we would have been happy to do if we had a different capital structure.

[Gabi Gliksberg:]

And then on the fund raising side of things I mean outside of obtaining this match may be is it something that institutions are seem to be interested in and general at this point, is that why you calling after this also because there is good rates in that loan and money for that market right now or was it both?

[Michael Falcone:]

We certainly believe that this is a asset class which would be appealing to investors but otherwise we are just banging our heads against the wall. But we won't know that until we actually close in additional capital, right, we've been having conversations pretty much simply day we've got in the solar business about bringing more capital to it and we've got over $100 million of outside capital in that peer about $100 million. Megan what we have in line, - so we go like $80 of outside capital today and so we're continuing to look to make that number much bigger.

[Gabi Gliksberg:]

I mean I guess I understand you guys find us happy, but I don't know too much about the appetite amongst the institutions that you talk to, but it’s a product that you guys are the first to be talking to them about it or they're looking at multiple options and then just sort of waiting to decide which one or two firms like you have expressed this with and investment so to do?

[Michael Falcone:]

I don't think we know what they're seeing or what they're thinking. But I think we believe that there is additional capital out there to this product.

[Gabi Gliksberg:]

Got it. All right that's all from me, thanks.

[Operator:]

[Operator Instructions] The next question comes from Peter Rabover with Artko Capital. Please go ahead.

[Peter Rabover:]

Hi guys, I just got a couple questions one from maybe so I guess following up on the previous question, and providing some sort of value on or parameters around what you think your value is. But I don't know if it would go be breaking a lot of SEC rules if guys gave some sort of maybe three to five year guidance or what you're seeing your book value growth is, I don't know, presumably you know what things are worth and that you have a timeline that you would like to monetize them. So how do you think about that?

[Michael Falcone:]

I think that make this time sense. I also have been told by more than one where more than one occasion no.

[Peter Rabover:]

Okay, all right.

[Michael Falcone:]

It is just frustrating for us as it is for you I would guess. It is a circumstance where we've like to tell people about what we believe our future to be, but that is not an easy thing to do and that gives us the good deal price.

[Peter Rabover:]

I would mind probably three pages disclosures of just to get a sense that is come to that. But I understand. Okay, maybe on the down side aspect of it I know you guys had some you’ve talked about improving credit spreads. But do you guys have a thought what your duration is on your bond portfolio.

[Michael Falcone:]

5.5, 6 years.

[Peter Rabover:]

I guess maybe more on the book value impact have you guys thought about it like that. What are the 1% rise would do to your book value?

[Michael Falcone:]

Yes, we go through those numbers of the board of 1% increase, but we don't know - we've never disclosed that number. We will disclose that next quarter.

[Dave Bjarnason:]

Yes, likely starting with -

[Michael Falcone:]

We can do it, we have to do it beginning next year but we can put that disclosure voluntarily in next quarter.

[Peter Rabover:]

That would be great - I think that -

[Michael Falcone:]

Coming to that we closely but no you heard what our capital sitting in a room telling me I couldn’t say that. So we will put that in the next – and we’ll put that in the next filing just as a disclosure, it's easy for us to do. That way I can promise you.

[Peter Rabover:]

Okay, thank you I appreciate it. I don’t have any more questions.

[Operator:]

The next question comes from [Greg Venett] [ph] a Private Investor. Please go ahead.

[Unidentified Analyst:]

Good afternoon, Mike. Congratulations again. I wondered if you get through little more time, am I correct in the quarter one the biggest mover was the sales foreclosure on the bonds and then the subsequent sales of multifamily properties, is that correct?

[Dave Bjarnason:]

Yes well it had a significant impact in terms of from a reclassification perspective but respectively equity neutral meaning that when a split second before that, we can foreclose upon the underlying property, we have about $11.4 million in holding gains on that position deferred and other comprehensive income and when we foreclose from the property, you can sort of think of it as the bond is effectively legally extinguished and that crystalized that gain and as a result of that, that prompted reclassification of that gain out of one pocket of equity into net income which makes way to the equity. So from that perspective it was for purposes it is equity neutral event but it’s getting more big in terms of moving from one bucket of equity to another.

[Michael Falcone:]

Now let me add one thing to what Dave said over the course of last calendar year as we saw this transaction coming, we were able to write up the value of the bond whether real estate or bond, our bond is we are able to write up the value of the bond almost $5 million over the course of 2015. So that's when foreclosed in the beginning of this year the value that sort of came on our books for weeks or it came in at the real estate came in at that back value. So most of the value we talk about is the increasing value is from that foreclosure and sale have been recognized in bond value in prior quarters. In this quarter, there is sort of big changes in underlying value came from the sale of property called Reto in Tucson where we were an equity venture partner and transaction where originally we were the lender, we then probably two years ago ourselves put a little bit of capital in with a painted powder rehab and then sold it a big gain this quarter. And then probably the other significant source of gain in the quarter if you will came from just the change in the shape of the yield curve and an increasing the value of the bonds coupled with sort of improved debt service coverage of the couple of properties kind of kicking value of specific bonds. So well $2 million from resell gains and $3 million from the sort of yield curve credit improvements stuff and like to say those are CEO numbers not CFO numbers but that will get you kind of where we got value increase in the quarter.

[Unidentified Analyst:]

Okay. So I guess - consistent on the call and about trying to get - trying to figure out a valuation, my records is that the endpoint, I didn’t look everything I apologize but that classification you had on 20 different bonds that are considered non-performing bonds or bonds that have been listed and written down. So - you guys correct?

[Michael Falcone:]

Today no we don’t - we only have about 25 bonds today, so vast majority of those are performing can think of maybe a handful that are small handful actually that are non-performing and those are bonds which were more or less holding onto because we as indicated the underlying actions that number might get insulated a little bit because we are into some properties where we have especially junior debt and junior debt might not be performing but internal I think about property performance. It is couple of bonds and we provide some disclosure around our non- prefer bounds at least as it relates to those that we have in position today that are non-accrual status for example so if you looked at, its 28 of our filing you will see that the fair value of our position at March 31 nonaccrual was about $22.2 million so there is some disclosure in there at on what Mike had talked about?

[Unidentified Analyst:]

That was on page 28.

[Michael Falcone:]

It's also on page 14.

[Dave Bjarnason:]

So in the foot notes some case 28 in MD&A it's on page 14.

[Unidentified Analyst:]

For the bond - its one transaction we will just described in the first point prove it – our bond that is on our non-accrual status and ultimately a new you are going to be for closing and ultimately find the property is that on to your – of the value of the bond as you went along and focus advantage is that correct?

[Michael Falcone:]

Correct.

[Unidentified Analyst:]

Okay, I guess, people that are out there trying to take out the bright spots I call it – later that will have you currently have bonds on – cool status $23.3 million and I think it was page 28 that, that’s the value of what you, that’s the value of , that you will that will retuned down may be three years ago, five years ago of the bond fully is that correct?

[Michael Falcone:]

UPV on those bonds is $26 million and the fair value is 22.

[Unidentified Analyst:]

Okay. So as a potential if you are able to pull - from 22 back to 26, or possibly even a gain.

[Michael Falcone:]

Correct.

[Unidentified Analyst:]

Okay. And again with the disclosure - it would maybe helpful to direct - or may be what’s curtail is done on our earnings, potential - I mean put as a high. What's the accounting like you're allowed to do and say here is the price for new shareholders, here is the price that you might have to look? Does that make any sense here.

[Michael Falcone:]

Yes, I mean like we understand the issues Right I mean I think we have I mean in a perfect world we’d love to have the fair value of everything of our books – probably drive our accounts crazy but if everything where fair value at all the time, I think this would all be much more transparent everybody but that’s not where we are so, we tried to do all of we can there and work on doing better.

[Unidentified Analyst:]

There is also a reference about Savannah, is there something that I missed, is there something going on with the property within Savannah.

[Michael Falcone:]

We are have been marketing the property and there is no contract at this point I think there is sort of my understanding is there is a new manager may be or city manager in Savannah, and people are excited about the prospects here again but that excitement hasn't yet manifested itself in the sale contract.

[Unidentified Analyst:]

And my understanding is, you don’t control the sales contract the partner that controls is that correct?

[Michael Falcone:]

We’re one-third and we have a partner who is two-thirds, we are the general partner but they have to approve any sales.

[Unidentified Analyst:]

And those view anyone wants to sell it and then move on, I think somebody on the call or less suggesting that you might want to invest capital and then you like that’s not your expertise?

[Michael Falcone:]

I’d say there is a price of which we would sell the property, I would not see us putting a lot of capital in as we developed property building hotels and houses where else might go there is really a little beyond what were good at.

[Unidentified Analyst:]

I'm going to close [indiscernible] but I would suggest that was aboard that until you can figure out a way to disclose from investors, what’s the value of the businesses, the value of the company that only the company should be buying back shares of stock?

[Michael Falcone:]

Only the company is buying back shares and stock. All of senior management has to buy shares as part of their compensation plan. We don't have an option program anymore, but we have to spend a third of our cash bonuses senior managers on stock that's been part of the compensation plan for a while. I'm not sure I would -

[Unidentified Analyst:]

That's when we agree with that - that be disciplined on payroll that can be more disclosure in that – only to the shareholders. Everybody is a shareholder including you, and so coverage more clarity that would be discontinued.

[Michael Falcone:]

I will pastor suggested along, but I don't expect it will get much traction.

[Unidentified Analyst:]

No, and probably won't, but the share buyback program because of the stock when we trade the share buyback program or the buying of the stock is essentially between management buying a buy back from a compensation program. And the company buying back shares and retiring for the benefit of our shareholders? And the discount is such a large discount there, but I’m saying its only the benefit of all shareholders. You understand what I'm telling Mike?

[Michael Falcone:]

Actually I don’t, everybody has the right to buy shares we're choosing to buy shares under - as a company under 10b5 plan. Management can always buy under the exact same terms as the company. The company is got a - in most years the company exhausts its share buyback plan. So I think in general shareholders should want management aligned with the common shareholders. And I think we've been buying stock around, I particularly being buying stock for a long time and want to continue to do that.

[Unidentified Analyst:]

No, I understand that, I understand completely. I’m just saying that, management has more information about the valuation than the public, it will be better for the public all shareholders benefit on the buyback. I means it seems like it saying evenly split on the buyback plan away between management and the company.

[Michael Falcone:]

I don’t think that’s true, but in any of that what you’ve just said is true about every company in America, right. If management of every company doesn't know more about its company than the shareholders, then management isn't doing its job and the SEC has very prescribed rules about how to do this and I think we are extraordinarily careful in how we do our share buyback.

[Unidentified Analyst:]

I know you carefully doing that, I'm suggesting that it's been a broad past for years and I’m not just satisfied obviously the performance is wonderful but every call people are wondering how to get a valuation and we don’t - we haven’t been able to get a valuation, we don’t know.

[Michael Falcone:]

Greg, I don't think that's true. I think the GE transaction came on last quarter until that and we have pretty good fair value disclosure about the fair value of the bonds and the real estate relative to how they were on their books we still have that disclosure. The black box exists in the GE transaction and we're quarter into it and we're working to figure out a way to disclose it that it’s fair to shareholders and frankly keeps the company out of expensive losses.

[Unidentified Analyst:]

Okay. Thank you very much Mike, appreciate it.

[Operator:]

The next question comes from - is a follow-up from Gabi Gliksberg, a Private Investor. Please go ahead.

[Gabi Gliksberg:]

I think some of it already got answered, but I guess the comment was brought up about the share situation, I look forward to all the forms that you buy. But I do - I still want to ask you how many shares are potentially created by the company to get directors outside of what you guys thought obviously how much stock is there?

[Dave Bjarnason:]

So, we no longer have shares available - let me step back, there are options outstanding to Gary and to me which I disclosed in proxy, which I think total around 400,000 shares or so and are still five years old at this point. There are - maybe 100,000 options remaining under the plan but the board has elected not to issue those options over the last several years instead issuing cash bonuses and requiring senior management to use approximately one third of those bonuses to buy shares. The directors fees are roughly speaking they vary a little bit based on - if you’re chair of a committee so around $70,000 a year and they get paid half in cash and half in shares and those new shares are – those shares are newly issued shares. So let’s call it Brooks was telling me that was about 10,000 additional shares last year. That is kind of where we expect that number to be.

[Gabi Gliksberg:]

Got it. And I realize it's not a big number, but in the spirit of the last callers comment, I mean it probably does make sense both for that reason and because its that's not just - its actually had a discount of book value at this point. But it's not really making a lot of sense to - on the one hand buying back as much shares as you can. And then if you're creating and issuing new shares to directors of the post paying them in cash and hopefully they're excitedly buying shares with that cash and taking us off the market.

[Michael Falcone:]

Yes, we frankly had 10,000 shares, we look at it and - I mean I've looked at it actually and not raised it with the board actually because I thought was that small level not meaningful. But I will raise that in our next board meeting.

[Gabi Gliksberg:]

Thanks.

[Operator:]

[Operator Instructions] Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Michael Falcone for any closing remarks.

[Michael Falcone:]

Great, thanks operator. I want to thank everybody for their support. Obviously we are pleased with the way the year has started and we look forward to continuing to move the company forward both in the real estate business and in the solar business. So I guess we'll be back together in August and look forward to have conversation then. Thanks all.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.